Economic Logic, Too

About Me

I discuss recent research in Economics and various events from an economic perspective, as the name of the blog indicates. I plan on adding posts approximately every workday, with some exceptions, for example when I travel.

Thursday, October 10, 2013

I have argued several times already that hosting sports mega-events does not have a lasting impact and that the current impact is limited to the sectors providing directly services to the event (exhibits 1, 2, 3). Yet, politicians continue to come up with rationales why such events should be hosted locally and why public funds should be devoted to them. Is it that we economists are missing something here, or that the politicians are fooling everyone?

Marcel van den Berg and Michiel de Nooij observe that the immediate financial or economic gain from hosting is negative, thus one needs to finds arguments for hosting elsewhere. They highlights a series of biases among politicians that makes them commit to events they cannot afford. First, politicians commit early, before realities about what it implies have sunk in. Politicians thereafter rarely change opinions. Second, they are swayed by arguments about positive externalities like revitalizing areas or building otherwise useful infrastructure. But you can do all this without a mega-event. Third, they see only success stories. Fourth, the bidding process for a mega-event leads to a winner's curse like in any auction. Fifth, media are obviously biased in favor of hosting. Reporting on such events is their livelihood. Sixth, such mega-events provide excellent opportunities for "redistribution" of public funds to lobbyists. Seventh, it is all about pride. What a costly way to provide that.